Euro bulls were in big time control last week, forcing me to adjust my EUR/JPY short, and GBP/USD is seeing resistance that has me rethinking my short entry strategy.
Trade Closed: Downtrend Pullback on EUR/JPY
Last week, I took a nibbler short on EUR/JPY, trying to play the downtrend in the pair on a pullback. Unfortunately for me, the euro bears were no where to be found around the potential resistance area around the broken minor support and Fibs, likely due to a combination of weak Greenback flows, net positive Euro zone PMI reports and hawkish comments from Bundesbank President and ECB Member Jens Weidmann.
The potential resistance area that I notated in the original trade idea did appear to draw in sellers for a moment, but it was no match for the positive euro flows because of the trio of catalysts previously mentioned.
Shortly after the break above the lower ‘highs’ and Fibonacci area on very strong momentum, I decided to close manually (129.20) during Friday’s morning London session:
Total: -170 pips/ -0.22% on 0.50% risk
In hindsight, I probably should have cut the trade a little bit sooner as the catalysts were top tier, and especially after the bullish reaction to the hawkish ECB comments. I’d still be wrong on the trade but at least I would have lost a little bit less, which means more to work with to trade down the road. It’s all about surviving until you make it, right?
Entry Adjustment: Short Play At Descending Highs On GBP/USD?
It’s been about twenty days since entering short GBP/USD with a nibbler position at market (1.2823), trying to play the downtrend momentum behavior present in this pair as well.
Since then, Cable did continue to make a move lower, eventually bottoming out just above 1.2660 before Greenback bears took dollar down in the past week or so. This recent dollar weakness was likely on a mix of unwinding of safe-haven bets ahead of U.S.-China trade talks and Trump’s criticism against the Fed last week.
Cable made its way back up to the 1.2900 handle where it’s found resistance not once, but twice and having me thinking my second nibbler entry at 1.3000 is not likely to be hit. And the technicals certainly make a strong argument for bears to check this area out now as it looks like a double toppish pattern is forming right at the 1.2900 area and stochastic is showing potentially overbought conditions.
Because of the price action and the potential for the upcoming preliminary U.S. GDP report coming out to show another potentially strong quarter of growth, I’ve decided to adjust my second entry to possibly get bigger ahead of a new leg lower, hopefully avoiding missing another opportunity because of being overconservative. Here’s what I’m doing:
- Adjust second short entry from 1.3000 to 1.2900, at a position size that risks no more than 0.25% at a max stop of 1.3075.
- Max target remains at 1.2110
These adjustments still gives me a max risk of 0.50%, but increases my max reward to around 2.60% for a potential 5:1 return-on-risk.
Looking beyond this week, we’re heading out of the Summer dolldrums and hopefully into more volatility that September could bring as traders head back from Summer vacation. Will volatility come back though?
Actually, Forex Gump took a look at volatility changes between August and September for the last five years and found some interesting tidbits. It’s really an interesting read, and based on what he wrote, the change in volatility really depends on what we get from the FOMC, Brexit and global trade developments and deals in September.
Anyways, it’s up to the markets now for my Cable trade, so stay tuned for adjustments and updates…and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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